Christoph Hilfiker, born 1970 in Basel/Switzerland, is serving as a senior fund manager with LLB Asset Management in Vaduz/Principality of Liechtenstein. He's responsible for the research and the equity management of the Pacific region. Prior to joining LLB Asset Management, he was responsible for the European equity management at Münchner Kapitalanlage AG/Munich. He's the author of articles in several magazines like fund research, The Smart-Investor and The European Value Investor. He studied business law in St. Gallen (HSG) and completed his education with a MBA at the European Business school (EBS). He earned his CFA qualification in 2006. From 1994 until 1998, he was serving as a captain in the Swiss Air Force.

On Mar 11, 2011, a massive earthquake hit Japan. The earthquake that hit Japan was far worse than the ones...

Investors panicked and Japanese stock market tanked.

Three myths about Japan:

It is impossible to make money in Japan/Japanese stocks are for trading not investing.

Bruce Berkowitz — Go to places that people are running away from or ignored.

Buy at the points of maximum Pessimism — John Templeton

Frequently, something out of the blue like this, an extraordinary event, really creates a buying opportunity. I have seen that happen in the United States, I have seen that happen around the world. I don't think Japan will be an exception. — Warren Buffett, Korea, 04/11

LLB has basically made money in the past 13 years in Japan.

In 2000, I was in Munich and a speaker made the bullish case to buy gold, everyone laughed.

Myth #2 Weak economy = weak stock market.

This is not true. There is no positive correlation between GDP growth and the real return from its stock market.

Over the long run, there is not a positive association between a country's real growth in per-capita GDP and the real returns from its stock market.

Looking at 83 countries over 110 years, there is no evidence that investing in growth economies produced superior returns.

Sources: "In Triumph of the Optimists," 2006, Dimson/Marsh/Staunton, London School of Economics.

Many companies have transformed themselves into supra-national entities whose fortunes are entirely independent of their domestic market; a significant number of Japanese equities are world leaders and lot of them are incredibly cheap.

Myth #3 Shareholders don’t count.

In the last two years, dividends in Japan rose more than in any other developed country.

Cross holdings in Japan have decreased in Japan over the years.

Net debt of Japan is 114% of GDP, 4x tax revenue, which is not nothing but not too scary.

94% of public debt is domestically held, which is a good thing.

If economic growth is picking up, the revenues may well rise faster than any increase in debt services.

Now Japan is a playground for value investors.

Japanese market is trading below book value.

FCF yield is almost 10%

Dividend yield is 2.6%

Japan has a higher FCF yield than EM, US, Europe, etc.

Analysis over the 60 years shows that FCF yield has predicted returns the best for Japanese market.

Earnings revision — over last two months market was revising lower and lower, we think now that earnings will be revised upwards.

Is the industry economically viable? If no we look at liquidation, if yes we look for firms with moats so we look for earnings power value. Earnings Power Value (EPV) = adjusted book value x ROIC/R, such as Sumitomo Corp. If economically viable but no moat we look for free market entry, reproduction cost; an example would be Sony.

Nippon Paper Group 3893 JT

We look at liquidation value since business is decline.

It is very simple business to understand.

We value the assets and liabilities.

Look at restoration costs of the Ishinomaki Mill.

We look at current ratio, quick, coverage.

No. 1 in the Japanese paper market, rivalry with Oji.

The market is not dead, but shrinking, low growth.

It is a simple business and we understand it.

Assets and liabilities can be valued with great precision (tangible); we do not consider licenses, brand values, distribution networks, advertising, subsidiaries.

About the author:

Jacob Wolinsky

My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

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